Practice Test 1

 

1. The law of demand states that the quantity demanded of a good is inversely related to the price of that good. Therefore, as the price of a good goes:

Down, the quantity demanded goes down.

up, the quantity demanded also goes up.

up, the quantity demanded goes down.

down, the quantity demanded stays the same.

 

2. Deciding what the distribution of income should be is an example of normative economics.

True

False

 

3. According to the law of supply, what will motivate firms to increase their quantity supplied of a product?

Supply

Production cost

Price

Fixed cost

 

4. The most likely impact of an effective price floor is:

the demand curve will shift to the left.

a shortage will develop.

a surplus will develop.

the supply curve will shift to the right.

 

5. The Katrina disaster in New Orleans decreased the ability of oil companies to purify crude oil into gasoline. This caused:

the quantity of gasoline demanded to move out along the demand curve.

the supply curve for gasoline to shift inward.

the supply curve for gasoline to shift outward.

the quantity of gasoline supplied to move in along the supply curve.

 

6. If Argentina imposes a 20 percent tax on natural gas exports to be paid by suppliers. Other things equal, this causes the:

supply of natural gas exports to shift to the right.

quantity of natural gas exports produced to increase.

demand for natural gas exports to shift to the right.

supply of natural gas exports to shift to the left

 

7. “The distribution of income should be left to the market” is an example of:

positive economics.

normative economics.

the art of economics.

negative economics.

 

8. The economic decision rule is to undertake an action only when the marginal benefits of that action are greater than its total costs.

True

False

 

9. To engage in economic reasoning, one must compare:

marginal cost, sunk cost, and total benefit.

marginal cost and marginal benefit.

sunk cost and marginal cost.

total cost and total benefit.

 

10. The use of the phrase “other things constant” in supply and demand analysis indicates that:

we are considering all the changes which might take place in actual markets.

an equilibrium quantity has been reached.

we are considering changes in just one factor.

an equilibrium price has been reached

 

11. Alexandra has determined that studying an hour for her economics quiz will improve her grade on the quiz from 75 to 100. She also determines that this improvement is worth $20. To study for an hour for her economics quiz, however, she will have to work one fewer hour at her part-time job. Alexandra should:

study for the quiz only if her hourly wage rate is exactly $20.

not study for the quiz because earning a higher grade cannot have a dollar value.

study for the quiz as long as her hourly wage rate is more than $20.

study for the quiz as long as her hourly wage rate is less than $20.

 

12. The distinction between demand and the quantity demanded is best made by saying that:

the quantity demanded is in an inverse relation with prices, whereas demand is in a direct relation.

the quantity demanded is in a direct relation with prices, whereas demand is in an inverse relation.

the quantity demanded is represented graphically by a curve and demand as a point on that curve.

demand is represented graphically by a curve and quantity demanded as a point on that curve.

 

13. Opportunity cost:

is the net benefit forgone by not undertaking the next best alternative.

is nonexistent for some choices.

is the same as sunk cost.

includes only monetary outlays.

 

14. The minimum wage is an example of a price floor.

True

False

 

 

 

15. When gasoline prices fall, the demand for alternative fuel cars likely:

rises, raising their equilibrium price and quantity.

falls, lowering their equilibrium price and quantity.

falls, raising their equilibrium price and lowering equilibrium quantity.

falls, lowering their equilibrium price and raising equilibrium quantity.

 

16. A price floor causes excess demand, resulting in the need to ration by some means other than price.

True

False

 

17. The increase in the availability of organic foods likely:

raises equilibrium quantity and lowers equilibrium price for organic foods.

raises equilibrium quantity and price for organic foods.

lowers equilibrium quantity and price for organic foods.

lowers equilibrium quantity and raises equilibrium price for organic foods.

 

18. Real-world experience shows that when weather conditions reduce crop yields, the price of agricultural products will fall.

True

False